Some of our clients who manage their own investments rather than with the help of a wealth manager seem to struggle with one aspect – succession planning. Many have realised the need for the same through Covid. Whilst the services of a specialist estate planner is recommended, this article in the BusinessLine by Sonali Pradhan of Julius Baer gives an overview of a ‘Living trust’, an effective means of planning for incapacitation.
“In a living trust, one places her own assets into a private trust, which is fully controlled by the creator of the trust. The assets of this trust are also for an exclusive use of a settlor or creator of the trust during her lifetime.
During the able days of the settlor, she/he takes all decisions related to this trust such as buying assets, selling, redeeming or switching them, paying for expenses or merely withdrawing funds from the trust.
Settlor can freely move funds from the trust to herself since this does not involve any incidental cost such as tax or stamp duty in case of movable assets. In case of immovable assets, however, one needs to be aware of the potential stamp duty implication. The most common form of a living trust is a revocable one, in which case the settlor need not even worry about the tax incidence as the income of the trust is clubbed back in the hands of the settlor. To that extent, one can say that it is a tax neutral structure.
Operationally, it is important that the settlor names co-trustees at the time of the trust formation itself. However, they would have very little role to play until the time the settlor is able to manage her own affairs. Only when the settlor becomes incapacitated the co-trustees take over the trust assets and administer them as per the guidelines provided by the settlor in the trust deed.
Since the co-trustees would have been already registered as a signatory on a bank, demat account, mutual fund or any other investment related institution, they can seamlessly manage the trust assets without any delay or need to involve an external agency such as a court order which is typically required to take legal guardianship.
If the settlor recovers from the illness, she will regain the control of the trust’s assets. In case of the demise of a settlor, the co-trustees will distribute the trust assets to a person named in the trust deed by the settlor as a beneficiary.
Since there is no need to obtain a probate for living trust, there will not be delay in such distribution. Unlike a will, a living trust cannot be contested by the beneficiaries over the distribution of assets. To that extent, the settlor can plan a harmonious distribution of her estate.
If the settlor has so instructed in the trust deed, then the trust can continue for the benefit of such successor beneficiaries even after the demise of the settlor. If the successor beneficiaries are dependent, the same living trust which is converted as an irrevocable one, can be used by the settlor to plan for wealth succession.
In this case the co trustees will manage the trust assets and distribute the income to the beneficiaries as directed by the settlor and at a predefined incidence will hand over a trust property to the beneficiaries and dissolve the trust.
Living trust is one of the most flexible, effective and cost efficient structures in succession as well as incapacitation planning. If drafted thoughtfully, it can benefit the creators not only during her lifetime but also beyond.”

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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.

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